Sell it or Rent it? Newbie moving out of state.

14 Replies

Hi BP family! I wanted to get some opinions from you more seasoned investors on what you think I should do. I am a total real estate investing newbie. I'm about 100 episodes deep on the podcast, but have not jumped in yet. Thank you in advance for your time and advice! Details below.

-Current Residence = 4 bed, 2 bath, 1300 sqft, built 2003.

-Owe ~238K on it, refinanced recently and it appraised for 290K. Monthly mortgage/tax/insurance payment is $1334.

-I think I could rent it for ~$1500-$1600 based on other similar properties in the area on CL.  Not 100% sure.

My wife and I are looking to move back to the midwest here in the next six months. So my question is, do I sell it and take the upside to invest in something when we get there, or do I have my first rental as an out of state landlord?

I know the cashflow would be thin and doesn't really leave room to save for CapEx. I imagine I would need to hire a property manager, but I might be able to get a friend to handle it for a price.

Let me know if you need more info in order for you to give me some wisdom!  Thanks again!

Hey @Timothy Boyd

This is an interesting question and it actually gets posted quite a bit here on BP (or variations of it). It basically comes down to "Is the appreciation and loan pay down worth zero or slightly negative cashflow?" Most people here will tell you to sell it if it doesn't cash flow and I tend to agree. However, I was actually in a somewhat similar position a few years back and did actually sell, but it ended up being the wrong decision.

I was living in Ft Wayne, IN in a SFH I had purchased in 2006. You know, when prices were really high. A job opportunity came up for me in 2012 and I had to move suddenly. You know, when prices were really low. What I SHOULD have done is held on to this as a rental, taken the minimal or slightly negative cash flow and then sold it when the market turned around. What I ACTUALLY did was sell this at a $10k loss. I suppose it could have been worse though. I've stories of other people losing way more. The point is that today this property is worth about 25% more than when I sold it. If I had held on to it, today I would be better off by 7 more years of equity that a tenant would have paid for as well as the appreciated value. Today, it's easy to see why this was such a bad decision. But at the time, no one knew where the bottom was (at least I didn't).

If you sold this house today, it looks like you could walk away with $35k or so after paying your agent. If you decide to hold on to it and the market turns against you, you will either have to accept the loss in equity or be tied to this property for however long it takes for the market to recover. When you hold on to a cash flow neutral property, your betting on appreciation. I suppose this is fine as long as you recognize that it's a bet, not an investment.

For me, I would take the money and run. $35k is a nice chunk of money to put toward a cash flowing investment. 


@Robert Smith   Thanks for your insight!  Definitely something I need to think about.  We bought it in 2017 for 247.5K, so there is some appreciation already baked in.  I'll have to do some research on the trends, but I would hate to get stuck with it if there is a serious market correction and I'm 2K miles away.  I think you have the right idea of taking the money and starting out with our first investment property closer to where we will end up moving to.  Thanks again for your time, story, and advice!

I'd sell it and buy another property that produces a better ROI.

$1,500-1,600 per month in rent does not work when your payment is $1,334.

You still need to account for vacancy, CapEx, repairs and maintenance, property management, etc.

This property won't cash flow as a rental and $1,500-1,600 on a $290k property is not the best use of capital.

Looking at the numbers, I can't see any reason to keep this place, especially considering what could happen to those numbers in any kind of correction. 

If you're thinking about keeping it just because already have it, that's not really a good reason. 

The one thing that could change the dynamic is if you have some reason to believe that the area (Lafayette OR I guess) is radically undervalued and is bound to experience a huge economic surge in the foreseeable future...like if they're about to move Microsoft there, or make it the capital of Oregon. And if you are the only guy who knows about this, so it isn't already "priced in." 

@Timothy Boyd I think the number one reason to sell, besides those already mentioned, is the tax exempt status of the sale of your personal residence. You are nowhere near the $250k capital gain that would be taxable on the sale of a personal residence.

@Robert Smith makes some valid points, but I'll put a different perspective on how your Ft Wayne experience reads to me. You bought in 2006 and sold in 2012 for a $10k loss, you said? The way I see it, it cost you $138.89 a month (not considering any of the tax benefits) to live in a place that I bet would have cost you a lot more to rent? That's if you lived there the full 6 years ($10k/72)?  The scenario of keeping the house as a rental could have lead to your story of what it was like to fire 3 property managers because of costly extended vacancies and how one bad tenant did $XX,000 of damage to the place? Just saying, I don't think you did so bad and there are a number of ways holding onto it from a distance might not have gone well.

@Timothy Boyd

There's a thing on Zillow called make me move where you list it for sale without actually having it on the market usually at an above market price . Maybe try that avoid the agent fees.

Tim, 

I would say if you are moving away anyways, that you should sell it. I have 2 main reasons for this. 

1. Being a long distance landlord is tough, especially when it was for your primary residence when you originally bought the house. I think that upper tier of rental property is a tough sell because they do not always have the right amount of wiggle room to justify that high price tag. 

2. The midwest is much cheaper to invest. If you sell your home for 290k and bring the 40k left over, you could 1031 into a really high quality duplex or triplex in this area. Let me know if you need help running numbers or looking in the midwest! Best of luck.

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